As a financial advisor, you can spend much of your time helping clients create a workable retirement plan. However, it’s also important to think about what your personal exit strategy might look like when you’re ready to retire. Succession planning for financial advisors is not that different from succession planning for other companies. Though there are a few unique challenges to consider. We will discuss what they entail.
If you’re still focused on scaling your business, SmartAdvisor can make it easier to connect with potential customers.
Succession planning tips for financial advisors
When you’re ready to create a succession plan for your consulting business, it helps to know where to start. These tips can help you create a plan to exit your business with minimal disruption.
Tip 1: Identify your end goal
Succession planning is all about starting with an outcome and working back to create a plan designed to help you achieve it. The sooner you start thinking about your end goals, the more time you have to plan and make adjustments along the way if necessary.
Your overarching goal may be to pass on the business. But there are different versions of what that could look like. Handing over the business to your children may seem like an obvious choice. But if they’re not interested in running the business, you may need to cast the net wider for a successor.
For example, you might consider selling the business to a trusted associate or selling it to another advisor.
It’s also important to consider your personal timeline for leaving the company. Instead of giving up all of your duties at once, it may make sense to gradually withdraw as you train your successor to fulfill your role.
Tip 2: Estimate what the company is worth
If your goal is to sell the business, it’s helpful to have an accurate appraisal so you know how to price it. You can make a simple estimate of market value by subtracting all of the company’s liabilities from its assets.
That number can give you a starting point to work with in determining an acceptable price for the company. Asking an accountant to review your company’s finances can give you a more accurate valuation. You can take the extra step to get a professional business appraisal.
When looking at the numbers, it’s important to separate your emotions from the process. While the business may seem invaluable to you, an interested buyer will focus on the numbers and what return on investment they are likely to get.
Tip 3: strengthen your personal financial plan
By selling your consulting business, you may be able to walk away with a decent amount of money in hand. However, it is important to do some planning regardless of what you can win. This is so that you are not ill-prepared if you end up selling for less than you bargained for.
Some of the key considerations at this stage include:
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Ongoing contributions to your retirement plans
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Take out disability insurance or long-term care insurance
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Get a life insurance policy to take care of your loved ones after you are gone
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Decide what kind of retirement lifestyle you plan to live
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Drawing up an estimated pension budget
Health insurance is also something to consider since Medicare doesn’t kick in until age 65. If you plan to retire or part-retire before then, you’ll need to decide how you want to keep tabs on health care.
Tip 4: Communicate your plans
A succession plan is most effective when everyone in the company knows what to expect. Once you have a succession plan in place, it’s important to make sure those affected by it know how the transition will be handled.
This applies to both employees and customers. Long-time employees may want assurance that their role in the company will not be reduced or eliminated. Customers, meanwhile, want to hear that they will be in good hands after you leave the company.
Tip 5: Ask for help
You don’t necessarily have to do succession planning once and then forget it. It can be a continuous process. And you may need help making sure you tick all the required boxes.
Talking to a succession advisor can help you identify any weaknesses or holes in your current plan that may need to be addressed. They can review your plan and look for any obstacles or challenges you may have missed.
You can consult your accountant or tax attorney to discuss any tax implications of selling the business. If you need key person insurance for the business or other types of insurance for yourself, your insurance agent can assist you.
Why do financial advisors need a succession plan?
Succession planning is an opportunity to decide what will happen to the business you’ve built when you retire, pass away, or simply decide you’re ready to move on.
According to a 2022 SmartAsset survey, about two-thirds of financial advisors have a succession plan. If you’re part of the other third, you may be exposing your business to unnecessary risk.
It’s helpful to have a succession plan if you:
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Plan to retire and want to keep the business going
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You want to transfer the company to your heirs
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Are you planning to sell and want to make the transition as smooth as possible for your customers and staff?
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Would like to plan ahead for unforeseen situations, such as a long-term illness or disability that prevents you from running the business in a practical way
A financial advisor succession plan is essentially a safety net of sorts, as it allows you to plan for any unforeseen circumstances that may affect business operations.
What should a succession plan for a financial advisor include?
Succession plans are designed to answer specific questions related to different outcomes. What you include in your personal succession plan may depend on what your end goal is for the company and what happens to it when you’re no longer at the helm.
For example, say you want to leave the business to your two oldest children who are also employed by your company. Your succession plan should probably answer the following questions:
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What type of control will each child have?
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How is the property divided between them?
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What tasks does each have?
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What should happen if a child decides to stop being part of the company?
In a broader sense, succession plans can also be used to identify individuals who are critical to the business. If you are practical with all aspects of running the business, you may be the most important key person. But you may have additional support staff that also play an important role.
Your succession plan may need to include guidelines on which employees or key people to keep after you leave the company. If those individuals want to move because the business is being sold, you may also need to specify a process for recruiting and training the necessary staff to replace them.
It boils down
By creating a succession plan, you can remove any questions about what will happen to your business once you are ready to retire or move to another venture. The sooner you turn your attention to succession planning, the more time you have to create a plan that will most benefit the company and everyone associated with it.
Tips for Growing Your Financial Advisory Business
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Make it easier for customers to find you. If you’re ready to grow your financial advisory business, but want to do it in a streamlined way, take a look at SmartAsset’s SmartAdvisor platform. We match certified financial advisors with suitable clients in the US so you can easily grow your client base online.
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Expand your beam. SmartAsset’s recent research shows that many advisors expect to continue meeting with clients remotely after COVID-19. Consider broadening your search. And team up with investors who are more comfortable with holding virtual meetings or spreading out in-person meetings.
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